By Sinéad Carew June 3 Software stocks have rebounded from a punishing selloff as investors are betting that AI may boost the sector rather than leaving it for dead.
The iShares Expanded Tech-Software Sector ETF has surged nearly 42% from its April low, turning fears that AI would rip the heart out of the industry into hopes that software firms will enlist AI as a valuable ally
The software ETF is down under 2% for 2026 after earlier falling 30%. Now investors are flocking to firms they see succeeding at integrating AI and adjusting price models by charging clients based on actual usage – while steering clear of firms that are too dependent on traditional pricing, which involves subscription fees based on headcount. Analysts and portfolio managers point to security providers Datadog and Palo Alto Networks, chip design software developer Synopsys and giants Oracle and Microsoft as some of their favorites. “While AI is causing massive disruption, it is remapping the industry rather than destroying it,” said Daniel Morgan, portfolio manager at Synovus Trust in Atlanta.
After the recent months-long software selloff, many investors warned that the move was overdone and began kicking the tires on shares they considered too beaten-down while the broader technology sector, including chip stocks, was surging as investors pinned their hopes on the boom in AI. The bounceback rally accelerated last week when strong financial results and guidance from Snowflake and MongoDB boosted sentiment. Thomas Blakey, managing director of software equity research at Cantor, said the results show that “software companies will be beneficiaries of AI.” “We always advise being selective,” said Blakey, who rates both stocks ‘overweight’, but he said that “investors baked in a scenario that was too negative with regards to AI.” The latest star turn for software came with Monday’s rally following comments from Jensen Huang, the CEO of AI chip leader Nvidia, who told the Computex…